Panic of 1837 - Effects and Aftermath

Effects and Aftermath

Virtually the whole nation felt the effects of the panic. Connecticut, New Jersey, and Delaware reported the greatest stress in their mercantile districts. In 1837, Vermont’s business and credit systems had taken a hard blow. Vermont had a period of alleviation in 1838, but was hit hard again in 1839-1840. New Hampshire didn’t feel the effects of the panic as much as its neighbors did. It had no permanent debt in 1838, and did not have a lot of economic stress the following years. New Hampshire’s greatest hardship was the circulation of fractional coins inside the state. Conditions in the South were much worse than the conditions in the East. Though the Old South was hit hard, the Cotton Belt was dealt the worst blow. In Virginia, North Carolina, and South Carolina the panic caused an increase in the interest of diversifying crops. New Orleans felt a general depression in business, and its money market stayed in bad condition throughout 1843. Several planters in Mississippi had spent much of their money in advance, leading to the complete bankruptcy of many planters. By 1839, many of the plantations were thrown out of cultivation. Florida and Georgia didn’t feel the effects as early as Louisiana, Alabama, or Mississippi. In 1837, Georgia had sufficient coin to carry on everyday purchases. Until 1839, citizens of Florida were able to boast about the punctuality of their payments. It was in the 1840s when Georgia and Florida began to feel the negative effects of the panic. At first the West did not feel as much pressure as the East or the South. Ohio, Indiana, and Illinois were agricultural states, and the good crops of 1837 were a relief to the farmers. In 1839, agricultural prices had fallen and the pressure had reached the agriculturalists.

Within two months the losses from bank failures in New York alone aggregated nearly $100 million. "Out of 850 banks in the United States, 343 closed entirely, 62 failed partially, and the system of State banks received a shock from which it never fully recovered.". The publishing industry was particularly hurt by the ensuing depression.

In 1842, the American economy was able to rebound somewhat and overcome the five year depression, in part due to the Tariff of 1842, but according to most accounts, the economy did not recover until 1843.

Most economists also agree that there was a brief recovery from 1838 to 1839, which then ended as the Bank of England and Dutch creditors raised interest rates. However, economic historian Peter Temin has argued that, when corrected for deflation, the economy actually grew after 1838. According to economist and historian Murray Rothbard, between 1839 and 1843, real consumption increased by 21 percent and real gross national product increased by 16 percent, despite the fact that real investment fell by 23 percent and the money supply shrank by 34 percent.